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Thai central bank holds rates in split vote

Wednesday, 22 Jan 2014 | 2:45 AM ET
Anti-goverment protesters wave Thai national flags during a march in downtown Bangkok as part of their ongoing rallies.
Piti A Sahakorn | LightRocket | Getty Images
Anti-goverment protesters wave Thai national flags during a march in downtown Bangkok as part of their ongoing rallies.

The Bank of Thailand voted to keep interest rates on hold Wednesday despite expectations that political tension would push the central bank to cut rates.

Thailand's central bank voted 4 to 3 to keep interest rates unchanged at 2.25 percent, saying that the current policy rate is appropriate for growth. Three members voted for a 25 basis point rate cut to cushion the economy against rising downside risks.

(Read more: Thai market may muddle through state of emergency)

Wednesday's decision comes as a surprise for some investors who believed that the impact of continued protests and political tension would lead the central bank to cut interest rates in an attempt to lessen any negative impact on growth.

In a statement accompanying the decision, the central bank said that the ongoing political situation continued to dent private confidence, weighing on Thailand's overall growth outlook. However, it added that it only sees the political unrest having a short-term economic impact, noting that the country's economic fundamentals are still good and should help the country weather short-term risks stemming from the political drama.

Should foreign firms in Thailand look elsewhere?
Song Seng Wun, Regional Economist at CIMB, discuss the outlook for foreign companies in Thailand as political unrest heightens.

Furthermore, the bank noted that there has not been much selling of Thai stocks and bonds, which it views as a reflection of investors' confidence in the country.

(Read more: To cut or not cut?Thailand mulls rate move)

The bank cut its 2013 gross domestic product (GDP) growth forecast to "less than three percent" from "around three percent" previously citing soft domestic demand in the fourth quarter. It also reduced its 2014 forecast to "around three percent" from "around 4 percent" previously.

(Read more: We don't mind losing'fair elections': Abhisit)

The forecast revisions come after Thailand's finance ministry recently cut its 2014 GDP growth forecast to 3.1 percent from 4.0 percent.

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